Capital controls could hit chemical companies

Closed sign.jpgCFO’s have a lot to think about currently. Volatility is rising in currency and oil markets. Plus credit risks on previously safe ‘sovereign’ debt markets are also increasing.

Today, for example, there are new concerns that investors in Dubai World’s $22bn debt may lose 40% of their investment.

Equally, current problems in the eurozone over Greece’s debt may well spill over into Spain, Portugal and even Italy – where debt levels are also high.

Recent history would suggest these problems represent a one-way bet for speculators. Ever since George Soros famously ‘broke the UK£‘ in 1992, it has been assumed that markets rule. But this is only a recent development. When the blog started work in 1976, for example, it was only allowed £50 for each business trip abroad, due to capital controls.

Now, John Dizard in the Financial Times warns that sooner rather than later, European officialdom will impose higher taxes, credit restrictions and transaction barriers aimed at global macro traders“, and “shock measures that force the unwinding of politically undesirable trades“.

Of course, such moves in defence of the euro are not on the agenda today. But Dizard has a record of being proved right over time. And if they did occur, CFOs might wake up one morning to find they now have significant amounts of money locked away in the wrong place.

Prudent CFOs will therefore no doubt want to consider the potential impact of capital controls, where they next update their risk management strategies.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

, , , , , ,

Leave a Reply